CRISIL has upgraded its rating on the long-term bank facilities of Gujarat Gas Limited (GGL) to 'CRISIL AA+/Stable' from 'CRISIL AA / Positive'.
The upgrade reflects CRISIL's expectations of an improvement in GGL's credit profile over the medium term. Sustainable improvement in cash accruals is expected to improve GGL's financial risk profile notwithstanding the sizeable capital expenditure (capex) programme.
GGL has reported a healthy growth in operating profit led by higher gas sales volumes and benign cost of re-gasified liquefied natural gas (R-LNG), in the first half of fiscal 2020. The volume growth was mainly driven by higher gas sales in the Morbi industrial area. In March 2019, the National Green Tribunal (NGT)'s order of banning the use of coal gasifiers in Morbi (Gujarat) region led to migration of industrial customers, mainly ceramic tile manufacturers, to piped natural gas from coal. Commercialisation of new geographical areas (GAs) will further support the volume growth.
GGL has annual capex plan of Rs 700-800 crore, to be largely funded through internal accruals. GGL has received the authorisation to set up city gas distribution (CGD) network in 7 new GAs won under the Round 9 and Round 10 bid conducted by the Petroleum and Natural Gas Regulatory Board (PNGRB). Further, it plans to expand the network within existing GAs as well. The project risk on account of sizeable capex and newer geographies is partially mitigated by GGL's long standing experience in CGD business.
The rating continues to reflect the company's sizeable scale of operations as the largest CGD entity in India, its healthy financial risk profile and stable profitability levels. These strengths are partially offset by its exposure to volatility in R-LNG and domestic natural gas prices and exposure to regulatory risks.